FILE - High gas prices are shown as a pedestrian waits to cross the street in Los Angeles, June 16, 2022. President Joe Biden on June 22 will call on Congress to suspend the federal gasoline and diesel taxes for three months.
WASHINGTON (AP) — President Joe Biden on Wednesday will call on Congress to suspend federal gasoline and diesel taxes for three months — a move meant to ease financial pressures at the pump that also reveals the political toxicity of high gas prices in an election year.
The Democratic president will also call on states to suspend their own gas taxes or provide similar relief, according to administration officials who previewed his proposals on the condition of anonymity because they were not authorized to speak publicly.
At issue is the 18.4 cents-a-gallon federal tax on gas and the 24.4 cents-a-gallon federal tax on diesel fuel. If the gas savings were fully passed along to consumers, people would save roughly 3.6% at the pump when prices are averaging about $5 a gallon nationwide.
But many economists and lawmakers from both parties view the idea of a gas tax holiday with skepticism.
Barack Obama, during the 2008 presidential campaign, called the idea a "gimmick" that allowed politicians to "say that they did something." He also warned that oil companies could offset the tax relief by increasing their prices.
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High gas prices pose a fundamental threat to Biden's electoral and policy ambitions. They've caused confidence in the economy to slump to lows that bode poorly for defending Democratic control of the House and the Senate in November.
Biden's past efforts to cut gas prices — including the release of oil from the U.S. strategic reserve and greater ethanol blending this summer — have done little to produce savings at the pump, a risk that carries over to the idea of a gas tax holiday.
Biden has acknowledged how gas prices have been a drain on public enthusiasm when he is trying to convince people that the U.S. can still pivot to a clean-energy future. In an interview with The Associated Press last week, Biden described a country already nursing some psychological scars from the coronavirus pandemic that is now worried about how to afford gas, food and other essentials.
"If you notice, until gas prices started going up," Biden said, "things were much more, they were much more optimistic."
The president can do remarkably little to fix prices that are set by global markets, profit-driven companies, consumer demand and aftershocks from Russia's invasion of Ukraine and the embargoes that followed. The underlying problem is a shortage of oil and refineries that produce gas, a challenge a tax holiday cannot necessarily fix.
Mark Zandi, chief economist at Moody's Analytics, estimated that the majority of the 8.6% inflation seen over the past 12 months in the U.S. comes from higher commodity prices due to Russia's invasion and continued disruptions from the coronavirus.
"In the immediate near term, it is critical to stem the increase in oil prices," Zandi said last week, suggesting that Saudi Arabia, the United Arab Emirates and a nuclear deal with Iran could help to boost supplies and lower prices.
Republican lawmakers have tried to shift more blame to Biden, saying he created a hostile environment for domestic oil producers, causing their output to stay below pre-pandemic levels.
Senate Republican leader Mitch McConnell mocked the idea of a gas tax holiday in a February floor speech. "They've spent an entire year waging a holy war on affordable American energy, and now they want to use a pile of taxpayers' money to hide the consequences," he said.
Democratic House Speaker Nancy Pelosi has previously expressed doubts about the value of suspending the federal gas tax.
Administration officials said the $10 billion cost of the gas tax holiday would be paid for and the Highway Trust Fund kept whole, even though the gas taxes make up a substantial source of revenue for the fund. The officials did not specify any new revenue sources.
The president has also called on energy companies to accept lower profit margins to increase oil production and refining capacity for gasoline.
This has increased tensions with oil producers: Biden has judged the companies to be making "more money than God." That kicked off a chain of events in which the head of Chevron, Michael Wirth, sent a letter to the White House saying that the administration "has largely sought to criticize, and at times vilify, our industry."
Asked about the letter, Biden said of Wirth: "He's mildly sensitive. I didn't know they'd get their feelings hurt that quickly."
Energy companies are scheduled to meet Thursday with Energy Secretary Jennifer Granholm to discuss ways to increase supply.
How gas prices have changed in every state in 2022
How gas prices have changed in every state in 2022
The national average price for a gallon of regular gasoline broke records repeatedly during the first two weeks of May, according to the American Automobile Association. AAA is a privately held not-for-profit national member association and service organization with more than 60 million members in the United States and Canada. Its nationwide survey on gas prices found that, as of May 16, 2022, nearly every state has passed the $4 per gallon price.
Gas price fluctuations—up 30.8% per gallon in the U.S. from one year ago—are felt on a personal level, but they’re often influenced by sudden events and major policy shifts across the country and world. Natural disasters like hurricanes that shut down refineries along the Gulf of Mexico—where roughly half of America’s crude oil is processed—can drive prices up almost immediately. As during the First Gulf War with Iraq in 1990-91 or with Russia’s invasion of Ukraine in February, military conflicts involving oil-producing countries can also cause ripple effects worldwide.
The cost of crude oil, set by global supply and demand, is the country’s most significant determinant for gas prices. Currently, high seasonal demand, rebounding travel in the wake of COVID-19 restrictions, weak domestic output, and international sanctions against Russia—a massive player in the global oil market—are all contributing to ever-increasing prices at the pump.
Route-planning app Routific examined AAA data to see how gas prices have changed in every state over the past year, including in our nation’s capital in response to global events. States on the East Coast have seen the most painful price increases at the pump.
Price increases occurred across the U.S.
Every state and Washington D.C. saw gas prices increase over the last 12 months. While the national average is well above the $4 mark and hovered closer to $4.50 in mid-May, major cost discrepancies exist between states and within state borders. Living close to a regional oil hub can keep prices down. Meanwhile, living in a state with high fuel taxes like California can add up at the pump: Drivers in the Golden State pay 51 cents per gallon compared to those in Texas, who pay 20 cents per gallon.
Russia’s invasion of Ukraine revived global oil demand
As the world’s largest country spanning the Eurasian landmass, Russia is a top exporter and the third-largest producer of crude oil. However, sanctions levied by the U.S. and the European Union in response to Russia waging war against neighboring Ukraine have reduced Moscow’s ability to sell crude, even as limited global supplies have paradoxically increased Russian export revenues. This is partially due to the sanctions stopping well short of a full international boycott.
Unlike the U.S. Congress, the EU’s 27 member countries cannot agree upon a total ban on Russian oil imports. Hungary, which remains heavily reliant on Russian imports, opposes the harshest restrictions. Recently the U.S. was importing just 3% of its crude oil from Russia, making a ban more than feasible. But other partner countries remain more reliant on Moscow for their supplies, including NATO member Turkey. Since its widely condemned invasion, Moscow has exploited these divisions within the EU, while selling crude at a discount to U.S. trade and security partners beyond Europe, including to India. Like many other commuters in Asia, Indians are driving more after the lifting of pandemic restrictions. The same trend is seen here in the U.S.
The impact of of rising gas prices
The rise in gas prices have many Americans feeling the pinch at the pump, and 62% of small business owners say that inflation is the biggest problem facing their businesses, according to a May 2022 survey from the National Federation of Independent Business. The survey also found that 99% of small business owners have seen gas prices negatively impact their business, with 77% citing it as the substantial contributor to their higher costs. In fact, nearly half of owners said that the cost of energy—which includes gas and electricity—is one of their top five business expenditures.
With no sign of gas prices dropping soon, business owners must make difficult financial decisions to stay afloat: raising prices for customers; switching to cheaper materials; reducing the quantity or volume of their goods and services; cutting delivery services or reducing their delivery vehicles’ range to save on gas; and postponing work trips, to name a few.
Meanwhile, for everyday Americans, many resumed the types of domestic travel and work commuting previously on hold due to COVID-19 restrictions. Vehicle miles traveled hit a 26-year low in April 2020 but rebounded to pre-pandemic levels by summer 2021. Increased demand has not been matched by increased supply, as U.S. crude oil struggles to recover from the operational impacts of COVID-19 and a record 8% decrease in production in 2020.
Price changes are more dramatic in regions with historically low gas prices
Access to regional oil refineries can significantly impact gas prices. Nearly 43% of the nation’s crude oil is refined in Texas—home to the oil and gas-rich Permian Basin. That keeps Texans paying about 30 cents less per gallon than the national average. But in California, crude access is more geographically limited, keeping gas prices consistently higher. The recent per-gallon price hikes in response to volatilities like post-pandemic fuel demands or the Russian-Ukrainian war have been more sudden in the Gulf Coast region compared to West coast states that are used to higher costs.
State mitigation measures
Three states—Connecticut, Georgia, and Maryland—temporarily suspended state gas taxes to alleviate the financial burden of rising fuel prices. Maryland’s tax holiday lasted only 30 days this spring, ending in mid-April. Georgia’s and Connecticut’s fuel tax suspensions will expire on May 31 and June 30, respectively.
In March, U.S. Senate Democrats introduced the Gas Tax Relief Act, which would suspend the federal fuel tax until January 1, 2023. The freeze would save the average driver roughly $2.76 per visit to the pump. The bill is still under review. What’s clear is that higher prices at the pump are hurting workers who don’t have the option to telecommute—especially those who work in sectors previously hammered by the pandemic, such as construction and hospitality.
This story originally appeared on Routific and was produced and distributed in partnership with Stacker Studio.
